TransAct Technologies Inc. — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012. Unaudited results; comparisons are with Q1 2011 unless stated otherwise. TransAct designs and sells transaction printers, software, supplies and services across banking/POS, casino and gaming, lottery, oil and gas, medical and mobile markets. It reports one operating segment. Printrex, acquired in August 2011, is included in current-period results.
Financial performance
| Metric | Q1 2012 | Q1 2011 / comparison |
|---|---|---|
| Net sales | $17.559 million | $20.694 million; down 15.1% |
| Gross profit / margin | $6.778 million / 38.6% | $6.932 million / 33.5% |
| Operating income / margin | $1.910 million / 10.9% | $2.788 million / 13.5% |
| Net income | $1.208 million | $1.825 million |
| Diluted EPS | $0.13 | $0.19 |
| Cash from operations | $1.155 million | Cash used of $1.258 million |
| Cash and cash equivalents | $7.873 million at March 31 | $6.863 million at December 31, 2011 |
Gross profit fell 2.2%, but gross margin improved 510 basis points, mainly from a more favorable mix of higher-margin casino/gaming and Printrex products and fewer lower-margin lottery printers. Operating expenses rose to $4.868 million from $4.144 million, reflecting Printrex costs, increased product-development spending and $54,000 of restructuring charges. The effective tax rate was 36.0%, versus 35.0%; the 2012 rate excluded the federal R&D credit, which expired at year-end 2011.
Revenue changes and operating drivers
- Lottery: Sales fell 86.3% to $1.030 million, primarily because of lower shipments to GTECH. The company expected 2012 GTECH sales to be significantly below the near-record 2011 level; orders depend on the timing and number of terminal installations.
- Casino and gaming: Sales rose 35.3% to $9.411 million, supported by higher thermal casino printer sales, market-share gains, new casino openings, initial EPICENTRAL software sales and increased Italian VLT installations.
- Banking/POS: Sales declined 5.1% to $2.336 million. A large new banking-customer order partly offset reduced McDonald’s-related shipments after much of its U.S. rollout was completed in 2011.
- Printrex: Contributed $1.239 million in sales; no Printrex sales were included in Q1 2011.
- TSG: Sales declined 5.2% to $3.543 million, mainly from lower consumables sales to two OEM customers.
- Printer unit volume declined 31% to approximately 49,000 units; average selling price rose 20%, reflecting product mix and Printrex.
Cash, liquidity and debt
Operating cash flow improved to $1.155 million from cash use of $1.258 million. Inventory reductions provided cash, partly offset by a $3.238 million increase in receivables from sales concentrated late in the quarter. Cash rose by $1.010 million during the quarter. Investing activities used $54,000; financing activities used $80,000, including $145,000 of share repurchases. Working capital was $28.769 million, and the current ratio was 5.8.
There was no debt outstanding, and the company had $20 million available under its revolving credit facility, expiring November 28, 2014. It reported compliance with facility covenants at quarter-end. Management said available cash and operating cash flows should meet working-capital, capital expenditure, repurchase and other liquidity needs for at least 12 months. Planned 2012 capital expenditures, including capitalized software development, were approximately $1.5 million.
Outlook, risks and unusual items
- Management expected gross margin for the remainder of 2012 to exceed 2011’s level. It expected higher 2012 engineering, selling/marketing and G&A expenses, largely from the full-year impact of Printrex.
- Management forecast Printrex sales of approximately $5.0–$5.5 million for 2012 and TSG sales below 2011. Domestic casino sales were expected to exceed 2011, while Italian VLT sales remained dependent on regulatory conditions. No consolidated revenue or earnings guidance is provided in the supplied filing text.
- If the federal R&D credit was not reinstated, management expected a 2012 effective tax rate of 36%–37%.
- Printrex restructuring was expected to cost approximately $151,000 in 2012; $54,000 was recorded in Q1, with cash payments expected to finish by October 2012. The Printrex contingent consideration liability was $680,000; its undiscounted range was $100,000–$1.8 million.
- In March, the board increased the repurchase authorization to $15 million and authorized purchases of up to 1 million shares under a 10b5-1 plan. Management expected repurchases to use a significant amount of cash for the rest of 2012.
- A May 8, 2012 lease amendment extended the Ithaca facility lease through May 2016, with annual payments of approximately $430,000 and stated annual savings of approximately $125,000.
- The filing reported no material change in previously disclosed risk factors or market-risk exposure, no material off-balance-sheet arrangements, and no legal matters expected by management to materially harm financial condition, results or cash flows. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether lottery/GTECH shipments continue to fall and how that affects revenue and production levels.
- Whether casino growth, Italian VLT installations, EPICENTRAL adoption and Printrex sales meet management’s expectations.
- Whether the improved gross margin persists as product mix and shipment patterns change, alongside higher operating expenses.
- Receivables collection and working-capital trends, particularly after late-quarter sales; and cash available after planned repurchases and capital spending.
- The timing and amount of Printrex contingent consideration, restructuring costs and any change in the expected tax rate or R&D credit.